mckinsey - the india consumer story
TRANSCRIPT
McKinsey Global Institute
Tapping Into the Indian Consumer Market
28 June 2007
The India-Europe Investment Forum
1
HOW WILL INDIA’S CONSUMER MARKET EVOLVE IN THE FUTURE?
India’s economy has been growing rapidly …
• What impact has growth had on Indian incomes and how quickly will they grow in the future?
• How is the distribution of income changing? When will its middle class take off?
• How is income growth effecting urban versus rural areas?
• How much of rising Indian incomes will be spent versus saved?
• What will Indian consumers spend their newfound wealth on?
What does this mean for business and investment opportunities?
How should companies compete for the “new Indian consumer”?
2
OUR PANEL
• Prashant Desai – Group Head, Investor Relations and New Ventures (PE), Pantaloon Retail (India) Limited
• Richard Fairgrieve – Director of Global Emerging Markets, WestLB Mellon Asset Management
• Dippankar S. Haldar – Chief Executive Officer, WadhawanFood Retail (P) Limited
• A.P. Parigi – Managing Director and Chief Executive Officer, Entertainment Network (I) Limited
• R. Subramanian – Managing Director, Subhiksha Trading Services
3
KEY FINDINGS FROM McKINSEY GLOBAL INSTITUTE RESEARCH
• Indian incomes will triple over the next two decades, significantly reducing poverty
• India will emerge as the world’s fifth largest consumer economy
• A large urban middle class will develop, but rural areas will benefit too
• Patterns of consumption will shift rapidly towards discretionary spending
• Income and consumption growth will create opportunities and challenges for business and government
4Source: McKinsey Global Institute
HOUSEHOLD INCOME GROWTH WILL ACCELERATE ACROSS INDIA
Average household disposable income thousand, Indian rupees, 2000
1985–2005
2005–2025
0
100
200
300
400
500
1985 1990 1995 2000 2005 2010 2015 2020 2025
Rural
Urban
5.8%
3.6%
All India
5.3%
4.6%
2.8%
3.6%
Actual Forecast
Compound annual growth rates
5Note: Figures are rounded to the nearest integer and may not add up to 100%.
Source: McKinsey Global Institute
9380
54
3522
18
41
43
36
6 0 000755
1985
02928
1995
4 1
2015F
29
32
2025F
100%1,107
2005E
11 1
19
1,278 1,429Globals (>1,000)Strivers (500–1,000)
Seekers (200–500)
Aspirers (90–200)
Deprived (<90)
Middle class
INDIA WILL SEE CONTINUED REDUCTION IN POVERTY AND GROWTH OF ITS MIDDLE CLASS
Share of population in each income bracket%, millions of people
Household income bracketsthousand, Indian rupees, 2000
6
5 4 3
9 12 12
53 0
0
10
0
17
2005E
43
12
34
2015F
14
16
25
2
70
2025F
0 17
1985
110
1995
12
Globals (>1,000)
Strivers (500–1,000)
Seekers (200–500)
Aspirers (90–200)
Deprived (<90)
INDIA'S AGGREGATE CONSUMPTION WILL QUADRUPLE OVER THE NEXT 20 YEARS
4.1x
Note: Figures are rounded to the nearest integer and may not add up exactly to column totals.Source: McKinsey Global Institute
Aggregate consumption across income bracketstrillion, Indian rupees, 2000
Middle class
Household income bracketsthousand, Indian rupees, 2000
7
INDIA WILL BECOME THE FIFTH LARGEST CONSUMER MARKET IN THE WORLD BY 2025
Aggregate private consumption, 2005–2025billion, $, 2000
India Brazil India Italy India Germany
334 18,4292,082 584 13,540 1,064Per capita$, 2000
Source: Global Insight; UN Population Division; McKinsey Global Institute
370 388
746 783
1,5111,521
12 611 8 7 5Rank
2005 2015 2025
8
Food, beverages, and tobacco
ApparelHousing and utilitiesHousehold productsPersonal products and services
Transportation
Communication
Health care
Education and recreation
14
12
12
10
8
9
11
11
1719
20
6
69
7 9 13
4
1 5
2
34100%
2025F
248
5
3
2015F
140
34
5
3
56
60
1995
2
3
25
42
82
2005E
3
5
6
Share of average household consumption%, thousand, Indian rupees, 2000
Note: Figures are rounded to the nearest integer and may not add up to 100%.Source: McKinsey Global Institute
INDIA'S SHARE-OF-WALLET IS SHIFTING AS INCOMES RISE
Discretionary spendingNecessities
McKinsey Global Institute
Tapping Into the Indian Consumer Market
28 June 2007
The India-Europe Investment Forum
10
Back-up
11
0
100
200
300
400
1985 90 95 2000 05
Proprietary database 1985–2005
Econometric forecasting model
2006–2025
On-the-ground insights from McKinsey experience
0%
10%
20%
30%
40%
50%
60%
2006 2009 2012 2015 2018 2021 2024
What makes our work unique?• Focuses on future
consumption
• Covers 100% of demand
• Includes detailed income distributions
• Integrates macroeconomic scenarios
THE MCKINSEY GLOBAL INSTITUTE (MGI) HAS SPENT THE PAST YEAR EXAMINING THE FUTURE OF THE INDIAN CONSUMER MARKET
• Exclusive access to NCAER 300,000 household MISH survey
• Government NAS, NSS, and RBI data• Other sources, e.g., UN, World Bank,
Oxford Economics
12
MGI’s FORECAST ASSUMES 7.3 PERCENT COMPOUND ANNUAL GDP GROWTH
0
20.000
40.000
60.000
80.000
100.000
120.000
1985 1990 1995 2000 2005 2010 2015 2020 2025
History Forecast
Real GDPbillion, Indian rupees, 2000
Source: McKinsey Global Institute
Overall compound annual growth
Per capita compound annual growth
6.0%
4.0%
7.3%
5.9%
13
KEY FINDINGS
• Indian incomes will triple over the next two decades, significantly reducing poverty
• India will emerge as the world’s fifth largest consumer economy
• A large urban middle class will develop, but rural areas will benefit too
• Patterns of consumption will shift rapidly towards discretionary spending
• Income and consumption growth will create opportunities and challenges for business and government
14
GROWTH HAS LIFTED 431 MILLION FROM POVERTY AND COULD LIFT 465 MILLION MOREPopulation in households with annual disposable income less than 90,000 Indian rupees, 2000millions of people
* Number added to deprived if poverty remained at 1985 and 2005 rates respectivelySource: McKinsey Global Institute
327431
180
465
313
598
702
Deprived in 2025
Net reduction in poverty
Increase in poverty due to population growth*
Net reduction in poverty
Deprived in 2005
Increase in poverty due to population growth*
Deprived in 1985
15
THE SHAPE OF INDIA'S INCOME PYRAMID WILL CHANGE DRAMATICALLY AS INCOMES GROW
Strivers (500–1,000)Seekers (200–500)
Aspirers (90–200)
Deprived (<90)
Globals (>1,000) 1.2
10.9
91.3
101.1
2.4
Number of householdsmillion
Household income bracketsthousand, Indian rupees, 2000
Aggregate disposable incometrillion, Indian rupees, 2000
Source: McKinsey Global Institute
Aggregate consumptiontrillion, Indian rupees, 2000
2.0
3.1
11.4
5.4
1.6 1.2
2.1
8.5
4.1
1.0
Strivers (500–1,000)Seekers (200–500)
Aspirers (90–200)
Deprived (<90)
Globals (>1,000) 3.3
55.1
106.0
74.1
5.5 6.3
15.2
14.6
3.8
3.8 4.1
11.8
12.2
3.3
2.7
Strivers (500–1,000)Seekers (200–500)
Aspirers (90–200)
Deprived (<90)
Globals (>1,000) 9.5
94.9
93.1
49.9
33.1 21.7
30.6
13.7
2.6
20.914.1
24.6
11.9
2.4
16.5
2005
E20
15F
2025
F
16
THE INCOME DISTRIBUTION IN THE COUNTRY WILL WIDEN AS POVERTY FALLS AND THE MIDDLE CLASS GROWS
-5
0
5
10
15
20
25
30
35
0 100 200 300 400 500 600 700 800 900 1000
Source: McKinsey Global Institute
Annual household disposable incomethousand, Indian rupees, 2000
Distribution of household income% of households
19851995200520152025
17
0
20
40
60
80
100
120
140
1985 1990 1995 2000 2005 2010 2015 2020 2025
FIRST ASPIRERS AND THEN SEEKERS WILL BECOME THE LARGEST INCOME BRACKETS
Source: McKinsey Global Institute
ForecastActual
Deprived (<90)
Aspirers (90–200)
Strivers (500–1,000)
Globals (>1,000)
Seekers (200–500)
Number of households in each income bracketmillions of people
Household income bracketsthousand, Indian rupees, 2000
18
KEY FINDINGS
• Indian incomes will triple over the next two decades, significantly reducing poverty
• India will emerge as the world’s fifth largest consumer economy
• A large urban middle class will develop, but rural areas will benefit too
• Patterns of consumption will shift rapidly towards discretionary spending
• Income and consumption growth will create opportunities and challenges for business and government
19
RISING HOUSEHOLD INCOMES WILL BE THE KEY DRIVER OF CONSUMPTION GROWTH NOT CHANGES IN SAVINGS
Sources of growth in private consumption 2005–2025billion, Indian rupees, 2000
16,896
69,503
8,360
Privateconsumption 2005
42,326
Disposableincomegrowth
Growth innumber of households
1,922
Changes in savings
Privateconsumption 2025
80%Contribution to overall consumption growth
16% 4%
Note: Figures are rounded to the nearest integer and may not add up to 100%.Source: Oxford Economics; UN; McKinsey Global Institute
20
KEY FINDINGS
• Indian incomes will triple over the next two decades, significantly reducing poverty
• India will emerge as the world’s fifth largest consumer economy
• A large urban middle class will develop, but rural areas will benefit too
• Patterns of consumption will shift rapidly towards discretionary spending
• Income and consumption growth will create opportunities and challenges for business and government
21
URBAN INDIA WILL ACCOUNT FOR MORE THAN TWO-THIRDS OF CONSUMPTION GROWTH OVER THE NEXT 20 YEARS
Aggregate annual consumptionbillion, Indian rupees, 2000
16,695
Rural
Urban
69,502
62%
57%
43%16,896
All India consumption, 2005
Rural consumption growth
35,913
Urban consumption growth
38%
All India consumption, 2025
Contribution to consumption growth
Source: McKinsey Global Institute
32% 68%
22
MIDDLE CLASS HOUSEHOLDS WILL DOMINATE URBAN INDIA
Share of urban households by income class%, millions of households
81
46
219 5
18
50
66
32
12
00100% =
34
53
8333
1985
14
46
1995
1210
2015F2005E
6
26
51
114
2025F
1 Global (>1,000)
Strivers (500–1000)
Seekers (200–500)
Aspirers (90–200)
0
Deprived (<90)
62
Household income bracketsthousand, Indian rupees, 2000
Middle class
Note: Figures are rounded to the nearest integer and may not add up to 100%.Source: McKinsey Global Institute
23
LARGE CITIES TEND TO HAVE HIGHEST INCOMES, BUT SMALL ‘NICHE’ CITIES PROSPERING TOO
0
50
100
150
200
250
300
350
400
0 2 4 6 8 10 12 14 16 18 20
Delhi
Kolkata
HyderabadChennaiPune
BangaloreAhmedabad
Estimated population, 2001million
Average annual household disposable income, 2001thousand, Indian rupees, 2000
Total disposable incomebillion, Indian rupees
Tier 1 Tier 2
Ludhiana
Surat
Nagpur
Kanpur
Tier 3
MumbaiCoimbatore
Chandigarh
FaridabadAmritsar
Jallandhar
Goa
LucknowJaipur
Niche cities
Source: The Great Indian Middle Class, NCAER; McKinsey Global Institute
24
RURAL POVERTY WILL DECLINE SIGNIFICANTLY BY 2025
8
32
47
48
20
60 0000
2005E
1
46
875
2015F
12
29
906
2025F
Global (>1,000)682
Seekers (200–500)
Aspirers (90–200)
Deprived (<90)
100%
1995
1
90
0 1
1985
571
96
4 1 3
65
790
Strivers (500–1,000)
Share of rural population by income class%, millions
Household income bracketsthousand, Indian rupees, 2000
Note: Figures are rounded to the nearest integer and may not add up to 100%.Source: McKinsey Global Institute
Middle class
25
PER-HOUSEHOLD CONSUMPTION IN RURAL INDIA WILL REACH TODAY'S URBAN LEVELS BY 2017
158
104
67
5045
116
Urban India,2005E
1985 1995 2005E 2015F 2025F
Average consumption per householdthousand, Indian rupees, 2000
Source: McKinsey Global Institute
Rural India
26
KEY FINDINGS
• Indian incomes will triple over the next two decades, significantly reducing poverty
• India will emerge as the world’s fifth largest consumer economy
• A large urban middle class will develop, but rural areas will benefit too
• Patterns of consumption will shift rapidly towards discretionary spending
• Income and consumption growth will create opportunities and challenges for business and government
27
FALL IN SHARE OF SPENDING ON NECESSITIES IN INDIA IS COMPARABLE TO SOUTH KOREA'S DURING ITS HIGH-GROWTH PHASE
* Necessities include food and apparel; discretionary spending includes all other household spend categories.Source: Euromonitor; India data from McKinsey Global Institute
Discretionary spend*Necessities*
Share of average household spending %
Discretionary
Food
Apparel
0
25
50
75
100
1981 1986 19910
25
50
75
100
1985 1995 2005 2015 2025
History Forecast
South Korea India
Per capita income$, PPP, 2000
5,017 12,850 1,173 2,500 7,364
28
NUMBER OF URBAN HOUSEHOLDS WITH DISCRETIONARY SPENDING POWER TO MULTIPLY TWELVE TIMES
4458
6
29
118
2005E
23
49
2015F
794
2025F
Number of urban households with ‘true’ discretionary spending power*million
Source: McKinsey Global Institute
Globals (>1,000)
Strivers (500–1,000)
Seekers (200–500)
Household income bracketsthousand, Indian rupees, 2000
Middle class
* Consumers with sufficient budget to have significant levels of choice-driven spending (beyond categories such as food, housing, health care, education, fuel and transport services)
12x
29
INDIAN SPENDING PATTERNS WILL BE UNIQUEShare of total consumption, %
Note: Figures are rounded to the nearest integer and may not add up to 100%Source: Euromonitor, MGI China Consumer Demand Model v2.0, McKinsey Global Institute
• Food beverages and tobacco
• Apparel• Personal products and
services
In line with benchmarks15
414
21
510
19
68
23
413
35
114
42
68
25
511
U.S. Germany BrazilSouth Korea China
India(2005)
India(2025)
Consumption category
• Housing and utilities• Household products• Education and recreation
Less than benchmarks195
12
2778
229
13
184
16
96
15
1235
1039
• Transportation• Communication• Health care
More than benchmarks111
19
1714
1346
1228
677
1727
206
13
30
FOOD WILL REMAIN THE LARGEST CONSUMPTION CATEGORY WHILE COMMUNICATIONS WILL GROW THE FASTEST
0
2
4
6
8
10
12
14
16
0.0 1.0 2.0 3.0 4.0 5.0
Food, beverages, and tobacco
(17.3)
Market size in 2025trillion, Indian rupees, 2000
Housing and utilities (6.6)
Household products (1.8)
Apparel (3.3)
Personal products (7.4)
Healthcare (8.9)
Communications (4.3)
Education and recreation (6.1)
Transport (13.8)
Source: McKinsey Global Institute
7.0 8.0
2005 market sizetrillion, Indian rupees, 2000
2005–2025 compound annual growth rate of aggregate consumption%
31
KEY FINDINGS
• Indian incomes will triple over the next two decades, significantly reducing poverty
• India will emerge as the world’s fifth largest consumer economy
• A large urban middle class will develop, but rural areas will benefit too
• Patterns of consumption will shift rapidly towards discretionary spending
• Income and consumption growth will create opportunities and challenges for business and government
32
OPPORTUNITIES AND CHALLENGES FOR BUSINESSES
Opportunities• Along with China the fastest growing of world’s large consumer markets
over next two decades• Major discontinuity, winners have yet to be determined – $1.1 trillion of
new market growth not yet owned by anyone• Most accessible market – upper income urbanities – will grow twelve
times• Almost half of middle class will be ‘new consumers’ at any point in time –
loyalties up for grabs
Challenges• Indian companies
– Retaining existing customers and market shares– Adapting rapid pace of change– Innovating to capture new growth opportunities– Educating new consumers
• Multinationals– Meeting middle class aspirations at Indian price– Adapting products and services to meet Indian needs and task points– Building brands– Overcoming infrastructure, regulatory, and distribution hurdles
33
OPPORTUNITIES AND CHALLENGES FOR GOVERNMENT
Opportunities• A chance to make further significant inroads in poverty reduction• Domestic demand growth will spur further domestic production and
employment – particularly in higher value-added industries• An opportunity to attract FDC to serve Indian consumers• The potential to improve the material well-being of hundreds of millions
of people
Challenges• Long-term growth must be maintained• Infrastructure issues need to be addressed• Regulatory constraints on business need further reform to enable
businesses to meet growing demand and improve productivity• Financial system needs reform to efficiently allocate investment, re-
balance savings away from households and provide consumer credit• Significant investments in human capital required (education, health
care) in fiscally constrained environment
34
INCOME BRACKET CONVERSIONSHousehold annual disposable income, real 2000
Source: NCAER “The Great Indian Middle Class”; McKinsey Global Institute
Bracket Indian rupeesU.S. dollars non-adjusted
U.S. dollarsPPP adjusted
Globals
Strivers
Seekers
Aspirers
Deprived
1,000,000 plus
500,000–1,000,000
200,000–500,000
90,000–200,000
Less than 90,000
21,882 plus
10,941–21,882
4,376–10,941
1,969–4,376
Less than 1,969
117,647 plus
58,823–117,647
23,529–58,823
10,588–23,529
Less than 10,588
Middle class
35
BACK-UP
• Macroeconomic base case
• Urbanization, rural growth and education
• Additional results
36
MGI'S BASE-CASE GDP FORECAST IS MIDDLE OF THE RANGE
2.7
4.2
4.3
4.7
4.7
5.7
5.9
6.2
6.2
7.1
7.2
7.2Planning Commission–High
HSBC–High
Goldman Sachs–Base
HSBC–Base
Deutsche Bank–High
MGI/Oxford Economics–Base
Planning Commission–Base
EIU
Global Insight
PWC
Deutsche Bank–Base
Deutsche Bank–Low
Source Real per capita GDP growthCompound Annual Growth Rate, %
Source: Oxford Economics; India: Pitfalls and Possibilities, HSBC, July 2006; India's rising growth potential, Goldman Sachs, Jan 2007; India Rising: A Medium-Term Perspective, DB Research, May 2005; Towards Faster and More Inclusive Growth: An Approach to the 11th Five Year Plan, Planning Commission, Government of India, June 2006; The World in 2050: How Big will the Major Emerging Market Economies Get and How Can the OECD Compete?, PWC, 2006
Timeframe
2005–2015
2006–2020
2007–2012
2005–2025
2006–2020
2006–2020
2006–2025
2005–2025
2005–2050
2007–2012
2005–2015
2006–2020
37
SERVICES WILL CONTINUE TO BE THE MAIN DRIVER OF GDP GROWTH OVER THE NEXT TWO DECADES
Note: Figures are rounded to the nearest integer and may not add up to 100%.Source: McKinsey Global Institute
24
26
2736
199
40
8.8
1985
55
28.3
2005E
65
115.3
2025F
Agriculture
Industry
Services
100% =
Share of GDP%, trillion, Indian rupees, 2000
2.7Agriculture
6.4Industry
7.8Services
3.1
7.4
8.2
2005–20251985–2005
Growth by sectorCompound annual growth rate, %
38
INCOME GROWTH WILL ACCELERATE WITH ECONOMIC GROWTH
5.75.7
1985–1995
6.06.3
1995–2005E
6.4
7.3
2005E–2015F
7.47.2
2015F–2025F
GDP versus household disposable income growthcompound annual growth rate, %, Indian rupees, 2000
Source: McKinsey Global Institute
GDP
Household disposable income
39
INDIA'S CONSUMPTION SHARE OF GDP IS CLOSER TO JAPAN AND THE UNITED STATES THAN IT IS TO CHINA
44
23 2820
14
18 1216
-6
Private consumption
Government consumption
39
Net trade
100% =
3
2,216
China
57
1
4,553
Japan
62
-2
801
India
70
12,456
UnitedStates
Investment
Source: Global Insight; McKinsey Global Institute
%, billion, nominal $, 2005
40* MGI estimate based on 2005 GDP and estimates of flow-of-funds information.
Source: Country National Accounts; IMF; McKinsey Global Institute
21,1
16,28,1
10,4 7,8
11,3
-0,5
10,27,3
21,3
6.4-1.3
26.4
Japan
7.92.9
21.2
Mexico
9.90.3
18.0
France
2.1
12.922.0
50.4
China*
22.3
2.0
32.4
India
6.4
32.8
South Korea
United States
Corporations
Households
Government
Gross national savings rates% of nominal GDP, 2005
INDIA HAS A RELATIVELY HIGH NATIONAL SAVINGS RATE COMPARED WITH OTHER COUNTRIES
41* MGI estimate based on 2005 GDP and estimates of flow-of-funds information.
Source: Country National Accounts; IMF; McKinsey Global Institute
Household savings as a share of gross national savings rates, 2005%
INDIAN HOUSEHOLD SAVINGS ACCOUNT FOR A DISPROPORTIONATE SHARE OF NATIONAL SAVINGS
1620
24
3744
55
69
India France China* Mexico Japan South Korea
United States
32.4 18.0 50.4 21.2 26.4 32.8 12.9
Gross national savings rates% of nominal GDP, 2005
42
INVESTMENT WILL GROW APPROXIMATELY IN LINE WITH GDP
Source: National Accounts; McKinsey Global Institute
Expenditure share of real GDP%
-10
0
10
20
30
40
50
60
70
80
1985 1990 1995 2000 2005 2010 2015 2020 2025
ForecastHistory
Private consumptionInvestmentGovernment consumptionNet trade
43
Government expenditures and revenues*
0
5
10
15
20
25
30
35
40
1985 1990 1995 2000 2005 2010 2015 2020 2025-11,0-10,0-9,0-8,0-7,0-6,0-5,0-4,0-3,0-2,0-1,00,01,02,03,0
GOVERNMENT SPENDING AND DEFICIT WILL GRADUALLY DECLINE AS A PROPORTION OF GDP
* Government expenditure figures are available through 2005.Source: McKinsey Global Institute
Government budget deficit
History Forecast
Revenues (left scale)Expenditures (left scale)
Deficit (right scale)% of GDP
44
BACK-UP
• Macroeconomic base case
• Urbanization, rural growth and education
• Additional results
45
INDIA REMAINS LESS URBAN THAN ITS COUNTERPARTS IN ASIA, BUT DEFINITIONS VARY
Source: United Nations World Urbanization Prospects 2005; McKinsey Global Institute
81
696665
4840
2927
Vietnam India China Indo-nesia
Malaysia Japan United States
Korea, Rep.
Urban share of total population, 2005%
Urban population, 2005million
23 318 530 108 17 84 210 39
46
BIRTHS AND MIGRATION WILL DRIVE URBAN POPULATION GROWTH
Urban population, 2005–2025*million
105
100
523
318
Urban population, 2005E
Net births Netmigration
Urban population, 2025F
* Estimate of birth versus migration split assumes urban birth rate = 19 per 1,000 and death rate = 6 per 1,000Source: McKinsey Global Institute
1.6 x
Share of total population or urbanization rate
29% 37%
47
CLASSIFICATION OF CITIES AND TOWNS
* Population for each city estimated using the average urban household size (from MGI model) and the estimated number of households in each city from NCAER (in the year 2001).
Source: The Great Indian Middle Class, NCAER; McKinsey Global Institute
MumbaiKolkata, Delhi,
ChennaiBangaloreHyderabad
Ahemdabad, Pune
Surat, Kanpur, Nagpur, Lucknow, Jaipur, Kochi, Vadodara, Indore,
Ludhiana, Madurai, Bhopal, Patna, Nasik, Agra, Varanasi, Rajkot, Meerut,
Jabalpur, Dhanbad, Kozhikode . . . .
Tiruchirapalli, Amritsar, Faridabad, Aurangabad,Allahabad Gwalior, Jodhpur, Raipur, Bhubaneshwar, Goa, Pondicherry Aligarh, Moradabad, Mangalore, Gorakhpur,
Bhavnagar…
Rohtak, Rourkela, Udaipur, Anand, Faizabad, Hassan,Shimla, Roorkee, Gurgaon, Shillong…
Tier 1: Major cities
Tier 2: Mainstream cities
Tier 3: Climbers
Tier 4: Small towns
26 citiesPopulation >1 million
33 citiesPopulation >500,000
8 citiesPopulation > 4 million
Total income >100 billion Indian rupees
5,094 towns
48
HIGHER INCOME HOUSEHOLDS CONCENTRATED IN LARGE CITIES, POOR IN SMALL TOWNS
63
4327 25 22
9
9
98 8
Strivers
60
10
Deprived Globals
Tier 1: Major cities 15
13
47016,809
33
16
34,139
Aspirers
50
13
3,750
Seekers
55
12
806
Tier 2:Mainstream cities
Tier 3: Climbers
Tier 4: Small towns
100% =
Proportion of households in each income class across city tiers, 2001%, thousand, households
Note: Figures are rounded to the nearest integer and may not add up to 100%.Source: The Great Indian Middle Class, NCAER; McKinsey Global Institute
49
RURAL EMPLOYMENT HAS BEEN GRADUALLY SHIFTING AWAY FROM AGRICULTURE
7567
74
52
7
1987
87847
2004
Manufacturing Construction Trade, hotelsand restaurants Transport, storageand communication Others*
Agriculture
* Sectors with minimal shift in this period (6% in other services, 1% in mining, quarrying, electricity and water).Note: Figures are rounded to the nearest integer and may not add up to 100%.
Source: Employment and unemployment situation in India (2004–05), NSSO; McKinsey Global Institute
Distribution of rural male workers by economic activity%
50
AGRICULTURAL GROWTH IS FORECAST TO ACCELERATE FROM ITS RECENT HISTORICAL RATE
Agricultural value added in GDPbillion, Indian rupees, 2000
Source: McKinsey Global Institute
Compound annual growth rate
9,974
7,529
5,462
4,299
1995 2005E 2015F 2025F
2.4%
3.1%
51
* Enrollment is measured as a percentage of 15 to 24 year old population; attainment is measured relative to 15 and above population.
Source: McKinsey Global Institute
ACHIEVEMENT IN HIGHER AND SECONDARY EDUCATION WILL CONTINUE TO BECOME MORE WIDESPREAD
Rate of secondary-school and higher-education enrollment
Rate of secondary-school and higher-education attainment
0
5
10
15
20
25
30
35
40
1985 1995 2005 2015 2025
Secondary
Higher% of relevant population groups*
History Forecast History Forecast
0
5
10
15
20
25
30
35
40
1985 1995 2005 2015 2025
History Forecast
52
BACK-UP
• Macroeconomic base case
• Urbanization, rural growth and education
• Additional results
53
77
54
2410
15
32
51
36
17
7 120
8
10,098
1995
6
12
16,896
2005E
8
35
34,089
2015F
6
24
35
3
69,503
2025F
20
6,6792
1985
15100% Globals (>1,000)
Strivers (500–1,000)
Seekers (200–500)
Aspirers (90–200)
Deprived (<90)
Middle class
INDIAN CONSUMPTION WILL BE DOMINATED BY THE MIDDLE CLASS
Share of total consumption by income bracket%, billion, Indian rupees, 2000
Note: Figures are rounded to the nearest integer and may not add up to 100%.Source: McKinsey Global Institute
Household income bracketsthousand, Indian rupees, 2000
54
HALF OF URBAN CONSUMPTION WILL COME FROM UPPER INCOME STRIVERS AND GLOBALS
64
26
7
28
56
55
17
0100% 2
17
2.2
1985
26
10
4.0
6
1995
12
8
7.2
2005E
18
10
53
2
17.4
2015F
26
33
37
4
Global (>1,000)
1
43.1
2025F
Strivers (500–1000)
Seekers (200–500)
Aspirers (90–200)Deprived (<90)
Share of urban consumption by income class%, trillion, Indian rupees, 2000
Middle class
Note: Figures are rounded to the nearest integer and may not add up to 100%.Source: McKinsey Global Institute
Household income bracketsthousand, Indian rupees, 2000
55
ASPIRERS WILL DRIVE RURAL SPENDING OVER THE NEXT TWO DECADES
8472
37
188
79
15
33
6
86 126
26.4
2025F
0
Strivers (500–1,000)
Seekers (200–500)
Aspirers (90–200)
Deprived (<90)
100%Global (>1,000)
2
9
4.5
1985
04
17
6.1
1995
34
55
47
9.7
2005E
16.7
2015F
39
Share of rural consumption by income class%, trillion, Indian rupees, 2000
Household income bracketsthousand, Indian rupees, 2000
Note: Figures are rounded to the nearest integer and may not add up to 100%.Source: McKinsey Global Institute
56
CONSUMPTION BY ‘NEW-TO-BRACKET’ CONSUMERS WILL BE SIGNIFICANT, ESPECIALLY IN THE MIDDLE CLASS
* Calculated by determining the number of households that have shifted income class, assume they consume at new bracket levels in the first year, and then consider them ‘new’ to that bracket for three years.
Source: McKinsey Global Institute
‘New-to-bracket’ share of cumulative consumption 2005–2025*%, trillion, Indian rupees, 2000
78
57
59
89
Globals
Deprived 70.9
Aspirers
22 111.5
100% =
93.4Strivers
11 245.8
Seekers 41 262.6
43Middle class
‘New-to-bracket’consumersExisting consumers
57
FROM ASPIRER TO STRIVER – THE EVOLUTION OF SPENDING FOR A TYPICAL HOUSEHOLD
63 90
234248
119
47
46
69
40
24
49
13
22
Food, beverages, and tobacco
ApparelHousing and utilitiesHousehold productsPersonal products and services
Transportation
Communication
Health care
716 7 211 5
94
Aspirer2005E
137
18612
Seeker2015F
13
497
Striver2025F
214
Education and recreation
Average household consumptionthousand, Indian rupees, 2000
Source: McKinsey Global Institute
58
SHARE-OF-WALLET ON FOOD IS ALREADY LOW IN MIDDLE- AND UPPER-INCOME BRACKETS
61 72 79
39
Aspirers
28
Seekers
21
Strivers
Food, beveragesand tobacco
Other spendingcategories
100%
42 53 65
58
Deprived
47
Aspirers
35
Seekers
Food, beveragesand tobacco
Other spendingcategories
100%
5866
75
42
2005E
34
2015F
25
2025F
Food,beveragesand tobacco
Other spendingcategories
100%
All India average share-of-wallet evolutionShare-of-wallet of urban households in 2005E
Share-of-wallet of rural households in 2005E
%
Source: McKinsey Global Institute
59* Approximately 90% of spend on the broad category “food, beverages, and tobacco” is on food.
Source: McKinsey Global Institute
FOOD CONSUMPTION WILL ACCELERATE SIGNIFICANTLY EVEN AS ITS RELATIVE SHARE DECLINES
3,931
1985
5,622
1995
7,147
2005E
11,547
2015F
17,296
2025F
3.0%
4.5%
Total consumption of food, beverages, and tobacco*billion, Indian rupees, 2000
Per-capita consumption of food, beverages, and tobacco*Indian rupees, 2000
12.102
9.035
6.4546.0585.207
1985 1995 2005E 2015F 2025F
1.1%
3.2%
Share of total consumption%
59 56 42 34 25 59 56 42 34 25
Compound annual growth rate
60
FIVE CATEGORIES WILL ACCOUNT FOR MORE THAN 80 PERCENT OF CUMULATIVE CONSUMPTION OVER THE NEXT 20 YEARS
Breakdown of total cumulative consumption across categories (2005–2025)trillion, Indian rupees, 2000
Source: McKinsey Global Institute
784
4154
Household productsCommunicationApparelEducation and recreation
Totalgrowth
248
Food, beverages, and tobacco
148
Transport
87
Housingandutilities
79
Healthcare
74
Personalproducts and services
3222
148
Other